Correlation Between Kaiser Aluminum and Century Aluminum

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Can any of the company-specific risk be diversified away by investing in both Kaiser Aluminum and Century Aluminum at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Kaiser Aluminum and Century Aluminum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kaiser Aluminum and Century Aluminum, you can compare the effects of market volatilities on Kaiser Aluminum and Century Aluminum and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Kaiser Aluminum with a short position of Century Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kaiser Aluminum and Century Aluminum.

Diversification Opportunities for Kaiser Aluminum and Century Aluminum

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between Kaiser and Century is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum and Kaiser Aluminum is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Kaiser Aluminum are associated (or correlated) with Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Kaiser Aluminum i.e., Kaiser Aluminum and Century Aluminum go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Century Aluminum

Given the investment horizon of 90 days Kaiser Aluminum is expected to generate 0.6 times more return on investment than Century Aluminum. However, Kaiser Aluminum is 1.66 times less risky than Century Aluminum. It trades about 0.02 of its potential returns per unit of risk. Century Aluminum is currently generating about 0.0 per unit of risk. If you would invest  8,172  in Kaiser Aluminum on December 30, 2023 and sell it today you would earn a total of  764.00  from holding Kaiser Aluminum or generate 9.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Kaiser Aluminum  vs.  Century Aluminum

 Performance 
       Timeline  
Kaiser Aluminum 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Kaiser Aluminum unveiled solid returns over the last few months and may actually be approaching a breakup point.
Century Aluminum 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Kaiser Aluminum and Century Aluminum Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Kaiser Aluminum and Century Aluminum

The main advantage of trading using opposite Kaiser Aluminum and Century Aluminum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kaiser Aluminum position performs unexpectedly, Century Aluminum can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Century Aluminum will offset losses from the drop in Century Aluminum's long position.
The idea behind Kaiser Aluminum and Century Aluminum pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
Check out your portfolio center.
Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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